Managerial economics studies the concepts of micro as well as macroeconomics. A manager has the responsibility to take various decisions regarding various business operations, to take a feasible decision which can add value in the business, practical problems of business are solved using concepts of economics, theories, tools, and methodologies. All the decisions of a business organization are based upon the market; thus a manager must have knowledge about markets such as demand, profit, cost and competition on the parameters of microeconomics and macroeconomics.
Microeconomics: microeconomics studies the individual units of consumer and firm and its impact on the overall economy.
Macroeconomics: A macroeconomics studies the economy as a whole including structure, behavior, and performance of an economy.
Characteristics of Managerial economics are as follows:
- Managerial economics is the combination of micro and macroeconomics, which studies individual units of an economy as well as the economy as a whole.
- Managerial economics provides the basis for decision making for the manager of an organization for determining the goal, policies, resource allocation and utilization of an organization.
- Managerial economics provides practical solutions to every problem faced by a business organization.
- Managerial economics use scientific measures and methods to determine the cost of production, demand in the market, the price of goods and services, projected profits and risk faced by an organization.
Scope of managerial economics: Managerial economics is a continual process, which use different concepts, tools, and theories under its scope to analyze the business environment. Which are as follows:
- Demand forecasting and analysis: all the business processes are based upon the demand for goods and services in the market. A manager will assess future sales to grab market opportunities and maximize their profits.
- Profit management: the main purpose of the establishment of a business organization is to earn profits, thus various activities and operations are performed to maximize the profits of an organization. All the efforts can lead to success if a manager has the knowledge of the direction of efforts made, which will come from analysis of the micro and macro concepts and theories of economics.
- Capital and investment management provides the knowledge of investment required by the company to meet with the expenses incurred on planning and controlling various operations of an organization and where to invest additional funds The cost of capital and the rate of return determines the capital acquisition and policy of an organization.
- Production management: Managerial economics forecast the demand, thus the level of production will be determined according to demand in the market and available resources to an organization. A manager will thrive to utilize the resources available at maximum and satisfy the maximum demand of the market.
- Price theory: Price is the major factor that determines the demand for the product in the market, a manager has to determine the price of a product after critically analyze the factors affecting it. so that the cost of production can be recovered and the customer would be willing to buy the goods and services provided by an organization at a certain price.